Cash-rich, Celgene Corporation (NASDAQ: CELG) looked more like a speculative biotech when the stock when the stock fell 6.6% last week. The FDA sent a refusal-to-file letter from the U.S. Food and Drug Administration. Celgene applied for approval for ozanimod, a drug treating MS.
The letter from the FDA is a blow to Celgene. The drug is an expected blockbuster, worth $6 billion in peak sales for Celgene. This setback is both unexpected and embarrassing for Celgene. The company is thought to have given too little pharmacology data.
Buying opportunity or value trap
Celgene’s miss here looks amateurish and out of character for an established company. Ozanimod is an oral, one-daily drug that treats autoimmune diseases. It took ownership of the drug’s rights when it spent $7.2 billion on Receptos. But besides this particular setback, the overall 2020 estimates for Celgene’s revenue should hold. Only the launch date for Ozanimod is delayed.
Still, CELG stock could be a value trap. If its addressable market shrinks because of this setback and from its overall drug portfolio, investors are better off buying another value stock instead. Gilead Sciences (NASDAQ: GILD) comes to mind.
Takeaway
The stock’s drop and over-reaction will pass in time. As markets forget about the paperwork delay and ignore the reaction from analysts and sellers, the stock would recover. At an 8.7x forward P/E, the stock looks cheap.
